July 31, 2016

Value Destruction, You and Me; Part 2

In "Value Destruction, You and Me; part 1," I wrote about companies like Dollar Shave Club that are not just reshaping but destroying our current manufacturer through retailer to consumer business model.

Dollar Shave Club, Warby Parker and other digitally native vertical brandsare providing consumers with higher quality products at much lower prices than traditional suppliers like Gillette and Schick. There is more going on, however than just a better product at a lower price. These companies are using the Internet to intimately engage their consumer.

It's working. Dollar Shave Club, started in 2011, was just purchased by Unilever for $1 Billion. Warby Parker which sells high quality, great looking eyeglasses and sunglasses direct to consumers was founded in 2010 and is now worth in excess of $1.2 Billion.

The keys to success for digitally native vertical brands appear to be an ability to cut out costs that were one deemed essential. Television advertising; who needs it?Retailers like Walmart and Target; just an additional layer of cost. And besides, they get in the way of the brand intimately relating with the consumer.

By using social platforms; creating warm and fuzzy websites; offering outstanding products and doing so at barrier breaking prices, companies like Dollar Shave Club have managed to change the game. Will this have a long term impact on retailing? I think it will.

Here is how I see it: Dollar Shave Club's business model is a throwback to pre-department store retailing. In those days, if you wanted a hat you went to the haberdasher; if you wanted a screwdriver you paid a visit to the hardware store and if you wanted a needle and thread you went to a sewing notions store. That all changed because department stores were, through one-stop shopping, able to provide convenience. Why make all those stops when you could just make one?

There is, however, one very big difference. The Internet makes it possible for consumers to achieve convenience without going to one location. This presents a real danger to not just bricks and mortar retalers like Walmart and Target but to a digital behemoth like Amazon.

The Internet is essentially one big, one-stop shopping department store. Digitally native vertical brands that offer price, quality and even consumer intimacy will dominate in that kind of environment.